AbstractShot peening is a dynamic cold‐working process involving the impingement of peening media onto a substrate surface. Shot peening is commonly used as a surface treatment technique within the aerospace industry during manufacturing to improve fatigue performance of structural components. The compressive residual stress induced during shot peening results in fatigue crack growth retardation, improving the performance of shot‐peened components. However, shot peening is a compromise between the benefit of inducing a compressive residual stress and causing detrimental surface damage. Because of the relatively soft nature of AA7050‐T7451, shot peening can result in cracking of the constituent precipitate particles, creating an initial damage state. The aim of this paper is to understand the balance and fundamentals of these competing phenomena through a comparative study throughout the fatigue lifecycle of baseline versus shot‐peened AA7050‐T7451. Microstructure and surface topology characterization and comparison of the baseline and shot‐peened AA7050‐T7451 has been performed using scanning electron microscopy, electron backscatter diffraction, energy dispersive spectroscopy, and optical profilometry techniques. A residual stress analysis through interrupted fatigue of the baseline and shot‐peened AA7050‐T7451 was completed using a combination of X‐ray diffraction and nanoindentation. The fatigue life performance of the baseline versus shot‐peened material has been evaluated, including crack initiation and propagation. Subsurface particles crack upon shot peening but did not incubate into the matrix during fatigue loading, presumably due to the compressive residual stress field. In the baseline samples, the particles were initially intact, but upon fatigue loading, crack nucleation was observed in the particles, and these cracks incubated into the matrix. In damage tolerant analysis, an initial defect size is needed for lifetime assessment, which is often difficult to determine, leading to overly conservative evaluations. This work provides a critical assessment of the mechanism for shot peening enhancement for fatigue performance and quantifies how incubation of a short crack is inhibited from an initially cracked particle into the matrix within a residual stress field.